Swallow the hit, scheme in the shadows, and spare your wallet, says a fresh study by UK’s Aston University in a recommendation to the European Union (and the UK). Donald Trump’s Greenland tariff tantrum may be on ice, but the study reminds Europe that this is no time for chest-beating.
US President Donald Trump’s taste for trade brinkmanship seldom spares Europe. This month he brandished tariffs of up to 25 per cent on eight European economies to prod Denmark into selling Greenland. Brussels, London and Copenhagen bristled, but Mr Trump’s speech at Davos shelved the threat—at least for now.
Behind the drama sat a sober paper from Aston University in Birmingham. Its structural-gravity model pitted a full-blown tariff war against an exercise in restraint. “The modelling shows retaliation makes every European country worse off than if it absorbed the tariffs,” said Jun Du, professor of economics at Aston University, who led the research. The finding jars with political instincts that shout for tit for tat.
The study simulates eight scenarios, from a unilateral 10 per cent tariff to a co-ordinated EU-UK 25 per cent onslaught. In every case Europe fares best when it swallows the blow. At a 25 per cent rate, non-retaliation trims EU income per head by 0.26 per cent; hit back and the cost more than doubles to 0.55 per cent.
You might be interested
What price pride
The arithmetic upsets habitual calls for solidarity. Automobiles, aerospace and other high-value exports would bear the brunt, yet the bloc’s vast single market would cushion most consumers. The bigger risk, the paper argues, is stagflation, as dearer American inputs ricochet through supply chains. Ms Du’s conclusion: suffer rather than strike.
London’s calculus looks starker still. Mr Trump aimed his threat at Britain as well, but Prime Minister Sir Keir Starmer demurred. He said, “a trade war is in no one’s interest”. Aston’s numbers back him up. Retaliation would double Britain’s pain compared with standing still. “It’s unambiguous: the EU (and the UK) is best off not retaliating,” Ms Du told Financial Times. “Co-ordinated UK-EU retaliation would have produced the worst outcome for Britain, while joint non-retaliation from the EU and UK produces the smallest losses.”
Even so, Brussels lined up a €93bn package of tariffs on planes, cars, bourbon and soyabeans, ready to fire if Mr Trump pulled the trigger. Such readiness, the researchers warn, matters less than breadth. Goods alone will not sting. “The challenge is the threat has to be credible,” Ms Du said. “Europe can’t threaten to exclude Google or Microsoft, but it could take regulatory actions, for example, that would target new entrants to the market.”
Collateral damage, uneven gain
Sectoral exposure differs sharply. German carmakers and French aerospace firms would wince. Agri-food and chemicals, easier to divert towards Asia or the Middle East, would cope. Services—where Europe, not America, enjoys a surplus—barely move the dial in the model unless Brussels weaponises regulation. That may explain why some member states pressed for a narrower response while others itched to go big.
The paper also spotlights currency cushions. A tariff shock normally nudges the euro down, trimming losses. Yet a trade war can spook investors and send the single currency up instead, compounding hurt. Such feedback loops make forecasting treacherous, but they tilt again towards caution.
It’s unambiguous: the EU is best off not retaliating. — Jun Du, Aston University
Oddly, the study gives Washington comfort. America loses too, but less. Its domestic market is larger, its reliance on European inputs smaller. A pure 25 per se European counter-tariff would shave roughly 0.3% off American income, a nuisance not a disaster. That imbalance, the authors hint, skews negotiation leverage.
Strategy over sabre-rattling
What should Brussels do? The researchers urge cunning over commotion. Use the Anti-Coercion Instrument to drag disputes into labyrinthine legal forums. Tighten procurement rules that already irk Capitol Hill. Pursue digital-tax probes that sap the energies of Silicon Valley without blowing up supply chains. Above all, diversify export markets from India to Mercosur.
William Bain, head of trade policy at the British Chambers of Commerce, finds the message bracing. “The UK can be agile on trade, and must pursue further agreements with key markets. We must also add new economic security powers to our armoury so we can negotiate from a position of strength in any future trade disputes,” he added. Brussels hears a similar refrain from its own business lobbies, weary of endless tariff ping-pong.
Mr Trump’s penchant for tariff theatrics is unlikely to fade. Already he has accused South Korea of “not living up to” past deals and dangled a 25 per cent levy. The European Union still haggles with Washington over last year’s mini-truces. The Aston study reminds policymakers that every new threat demands a cool head, not hot steel.
Sign of weakness
The lesson carries political weight. Retaliation plays well on the stump, especially in election season. But voters rarely connect patriotic tariffs with dearer inputs and slower growth. The authors argue that transparency—publishing expected costs for each member state—could stiffen leaders’ spines when restraint looks like weakness.
None of this guarantees concord. Small states reliant on a single export may still clamour for payback, while larger ones fear contagion. Looking ahead, the study sketches a grim scenario: co-ordinated retaliation, a firmer dollar, supply shortages and a hesitant European Central Bank. Even then euro-area GDP drops by only 0.6 per cent by 2027. Painful, yes, but no calamity. That perspective may embolden doves in the Council of the EU who prefer lawsuits to levies.
We must also add new economic security powers to our armoury so we can negotiate from a position of strength in any future trade disputes. — William Bain, British Chamber of Commerce
The wider question is whether the European Union can wield its regulatory heft as deftly as America wields tariffs. The single market’s size offers clout, but only if member states stay aligned. The Aston team thinks they can, provided they resist the urge to mirror every American move.
For now the Greenland row has melted away, like so much Arctic ice. Yet the Aston study gives Europe a cold-eyed guide for the next skirmish. Less bombast, more brains—and perhaps a touch of British reserve—may spare the continent from self-inflicted wounds.
